Download malaysian tax conference 2014 sustainable tax system

MALAYSIAN TAX CONFERENCE 2014
SUSTAINABLE TAX SYSTEM
3-4 June 2014, Grand Ballroom, Hotel Sunway Putra, Jalan Putra, KL
Dialogue Session 8:
Sustaining the Taxation System
Towards a Sustainable Economy
En. SALIHIN ABANG
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PRESENTATION FLOW
TAX
SYSTEM
SUSTAINABLE TAX
SYSTEM
MALAYSIA
AS A
COUNTRY
WORLD
SCENARIO
AND TREND
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Presentation Outline
Introduction
Sustainable Economy
Sustainability Initiatives Worldwide
Sustainable Tax Policies: Global Perspective
Sustainable Tax Policies: Some Selected Countries
Trends and Lessons Learnt
The Challenges of the Malaysian Economy
Sustainable Tax Policies in Malaysia
Conclusion
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Introduction
• The financial crisis and lost of confidence in the system
• Demographic Challenge: The 7 billion world population of people
living on earth to increase to 9 billion by mid-century (UN)
• Unemployment and high cost of living
• Rapid urbanization and rural-urban migration
• Climate Change: more extreme weather situations
• Globalization
• Rapid Information Technology
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Introduction
“The challenge for humanity in the 21st
century - adapting and sizing ourselves to
fit within the capacity of one planet”
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Introduction
• The world economy is rapidly approaching and in some cases
exceeding the Earth’s capacity.
• If nothing is done, a potential 5% of global GDP will be lost
annually, twice the impact of the current economic crisis every
year, (former Chief Economist of the World Bank)
• The 21st century has witnessed an urgent call to tie economic
growth and stability with sustainability mindset.
• Higher emphasis on sustainability and its synonyms; green
economy, sustainable economy, sustainable development…
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Sustainable Economy
• A sustainable economy results in improved human well-being and social
equity, while significantly reducing environmental risks and ecological
scarcities (UNEP).
• It meets the needs of the present, without compromising the ability of
future generations to meet their own needs (WCED, 1987).
• It establishes a contract between generations with a certain balance
between economy, ecology and social responsibility
• It supports the capacity of the economy and preserves the environment
and natural resources.
• Thus, a sustainable economy considers human, social, economic and
environmental sustainability aspects (Robert Goodland, World Bank,
Washington, DC, USA)
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Sustainable Economy
• It is well acknowledged by all countries that all economic
policies must be evaluated in the context of sustainability and
TAX POLICY IS NO EXCEPTION.
• There has been a growing trend towards using tax policies as
mechanism to address the challenges threatening sustainable
economy.
• Most often highlighted is the so-called “green tax” policies; tax
incentives and penalties aimed at changing and making the
behavior of businesses and consumers more sustainable.
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Sustainability Initiatives Worldwide
•
•
•
•
•
•
•
•
•
Green technology
Waste management
Energy efficient electrical appliance
Green and Solar Energy
Electric cars
Green building
Pollution control and environmental protection
Human and animal rights advocacy
Poverty eradication initiatives etc
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Sustainable Tax Policies: Global Perspective
•
•
•
•
•
•
•
•
Energy efficiency
Carbon and climate change
Green innovation, Green buildings and Green vehicles
Renewable energy and fuels
Water and Material resource efficiency
Waste management
Pollution control and Ecosystem protection
Economic and other non-environmental tax reforms
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Green Tax Policy Ranking- Selected Countries
Source: The KPMG Green Tax Index 2013
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Some Recent Tax Policies: Paying Taxes 2014
Source: pwc & Doing Business (2014)
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Some Recent Tax Policies: US- 2015 Budget
Tax Provisions for Clean Energy and Manufacturing
• Tax credit for renewable electricity production
• Deduction for energy efficient commercial building
property
• Modify and extend tax credit for construction of
energy efficient new homes
• Tax credit for the production of advanced technology
vehicles
• Tax credit for medium and heavy duty alternative-fuel
commercial vehicles
• Additional tax credits for investment in qualified
property used in a qualifying advanced energy
manufacturing project
• Tax credit for cellulosic biofuel
Provisions Pertaining to Manufacturing, Research,
Clean Energy, and Insourcing
• Tax Incentive for Locating Jobs and Business
Activity in U.S.
• Enhance and Make Permanent the R and E Tax
Credit
• Extend and Modify Certain Employment Credits
• Modify and Make Permanent Renewable
Electricity Production Tax Credit
• Modify and Make Permanent the Deduction for
Energy-Efficient Commercial Building Property
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Some Recent Tax Policies: JAPAN
• Introduction of carbon
emissions tax
• Petroleum and coal tax to the
shipment of crude petroleum,
gaseous hydrocarbons or coal
from extracting stations or
bonded areas
• Tax Credits for Job Creation
• Tax Credits for Salary Growth
• R&D tax credits
• Fossil fuels taxes: oil and gas
tax, diesel oil delivery tax
and an aviation fuel tax
• Electric power-development
promotion tax
• Social welfare benefits
• etc
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Some Recent Tax Policies: OECD Countries
• Growing emphasis on the use of tax instruments to protect
the environment in OECD countries
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Revenue from Green Taxes
Some Recent Tax Policies: OECD Countries
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Some Recent Tax Policies: OECD Countries
Green Tax
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Some Recent Tax Policies: OECD Countries
Most OECD countries undertook significant (general) tax
reforms since the end of the 1980s in three ways:
1. reducing tax rates in the higher income tax brackets and
lowering corporate tax rates
2. broadening the tax base
3. Focusing on general consumption taxes
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Some Recent Tax Policies: OECD Countries
Taxes
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Some Recent Tax Policies- OECD Countries
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Some Recent Tax Policies- OECD Countries
Personal Income Tax Trend
Source: Matthews (2013)
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Some Recent Tax Policies- OECD Countries
Top Personal Income Tax Rates (%): 2007 & 2013
Sources: The Tax Policy Landscape Five Years after the Crisis, OECD Tax Working Paper No. 17 & Matthews (2013)
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Some Recent Tax Policies- OECD Countries
Corporate Tax Rates Trend
Source: Matthews (2013)
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Some Recent Tax Policies- OECD Countries
Top Statutory Corporate Tax Rates (%): 2007 & 2013
Sources: The Tax Policy Landscape Five Years after the Crisis, OECD Tax Working Paper No. 17 & Matthews (2013)
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Some Recent Tax Policies- OECD Countries
VAT/GST Trend
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Some Recent Tax Policies- OECD Countries
In the early 1990s, a number of countries in the EU implemented
“green tax reforms”, using three different ways:
1. reduction or elimination of environmentally harmful subsidies, including
direct public expenditures, “market price support” and/or exemptions
and other provisions in environmentally related taxes potentially harmful
for the environment;
2. restructuring of existing taxes according to environmental criteria;
and/or
3. introduction of new environmentally related taxes.
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Some Recent Tax Policies- OECD Countries
In a recent study, the OECD found that placing a price on pollution creates
opportunities for innovation as firms seek out cleaner alternatives.
For instance, in Sweden the introduction of a tax on NOx emissions led to a
dramatic increase in the adoption of existing abatement technology – from 7
per cent of the firms adopting the technology prior to the tax to 62 per cent
the following year.
The study also found that the design of the measure is of critical importance.
Taxes that are levied closer to the source of pollution (e.g. taxes on CO2
emissions versus taxes on motor vehicles) provide greater opportunities for
innovation (OECD 2010b).
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Trends and Lessons Learnt
• Taxes are transformed to meet sustainability objectives of the
economy
• Tax policies takes into account the ECONOMY, PEOPLE and
ENVIRONMENT
• A sustainable tax system is:
– Less complex, simple, efficient (administration and collection)
– Less burdensome to the taxpayer and less costly to comply
– Fair and just in bridging income inequality
– Able to generate enough revenue to contain expenditure
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The Challenges of the
Malaysian Economy
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Some Challenges
• Open Economy
• Depends on exports
• Uncertainties over the strength of its trading major trading
partner- China
• Fiscal position- fiscal deficit
• Addressing climate and demographic changes
• Unemployment and rising cost of living
• Social and economic inequality
• Globalisation and urbanisation
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Competition for FDI- Selected Countries
Countries
2009
2010
2011
2012
Singapore
24,939,245,829
53,622,774,583
55,922,840,687
56,651,074,727
Australia
29,002,397,768
37,098,104,596
66,271,163,219
56,595,431,544
Indonesia
4,877,369,178
13,770,580,771
19,241,252,762
19,618,049,398
Thailand
4,853,961,111
9,103,993,910
9,005,266,297
10,689,324,361
Malaysia
114,664,435
10,885,613,792
15,119,371,105
9,733,616,207
2,249,000,000
1,094,100,000
4,836,500,000
4,999,000,000
Korea, Rep.
Source: World Bank Data
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Competition for FDI- Selected Countries
Source: World Bank Data
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Competition for FDI- Malaysia and World Trend
Source: World Bank Data
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FEDERAL GOVERNMENT REVENUE SOURCES
Year
Direct Tax
RM (mil)
Indirect Tax
%
RM (mil)
%
Total Tax Rev.
RM (mil)
%
Non-Tax Rev.
Total FG Rev.
RM (mil)
%
RM (mil)
1970
685
37
1,155
63
1,840
77
560
23
2,400
1990
10,402
49
10,842
51
21,244
72
8,277
28
29,521
2000
29,156
62
18,017
38
47,173
76
14,691
24
61,864
2006
61,573
71
25,058
29
86,631
70
36,916
30
123,547
2007
69,396
73
25,772
27
95,168
68
44,717
32
139,885
2008
82,138
73
30,760
27
112,898
71
46,896
29
159,794
2009
78,375
74
28,129
26
106,504
67
52,135
33
158,639
2010
79,009
72
30,507
28
109,516
68
50,137
31
160,050
2011
102,242
76
32,643
24
134,885
71
50,534
26
191,154
2012
116,939
77
34,706
23
151,645
73
56,269
27
207,914
2013
120,523
77
35,429
23
155,952
73
57,418
27
213,370
Data Source: MoF
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FEDERAL GOVERNMENT REVENUE SOURCES
(RM, Million)
250,000
200,000
150,000
100,000
50,000
1970
1990
2000
DIRECT TAX
2006
INDIRECT TAX
2007
2008
TOTAL TAX REVENUE
2009
NON TAX REVENUE
2010
2011
2012
2013
TOTAL REVENUE
Data Source: MoF
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FEDERAL GOVERNMENT REVENUE & EXPENDITURE
FEDERAL GOVERNMENT REVENUE
YEAR
Tax Rev.
RM (mil) %
Non-Tax Rev.
RM (mil)
%
FEDERAL GOVERNMENT EXPENDITURE
Total
RM (mil)
Operating Exp. Development Exp. Total
RM (mil)
% RM (mil)
% RM (mil)
DEFICIT
1970
1,840
77
560
23
2,400
2,163
75
725
25
2,888
(488)
1990
21,244
72
8,277
28
29,521
25,026
70
10,689
30
35,715
(6,194)
2000
47,173
76
14,691
24
61,864
56,547
67
27,941
33
84,488 (22,624)
2006
86,631
70
36,916
30
123,547
107,694
75
35,807
25
143,501 (19,954)
2007
95,168
68
44,717
32
139,885
123,084
75
40,564
25
163,648 (23,763)
2008
112,898
71
46,896
29
159,794
153,499
78
42,847
22
196,346 (36,552)
2009
106,504
67
52,135
33
158,639
157,067
76
49,515
24
206,582 (47,943)
2010
109,516
68
50,137
31
160,050
151,633
74
52,792
26
204,425 (44,375)
2011
134,885
71
50,534
26
191,154
182,594
80
46,416
20
229,010 (37,856)
2012
151,645
73
56,269
27
207,914
205,537
81
46,932
19
252,469 (44,555)
2013
155,952
73
57,418
27
213,370
211,270
83
42,210
17
253,480 (40,110)
Data Source: MoF
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FEDERAL GOVERNMENT REVENUE & EXPENDITURE
(RM, Million)
300,000
250,000
200,000
150,000
100,000
50,000
1970
1990
2000
2006
2007
2008
2009
2010
2011
2012
2013
(50,000)
(100,000)
TAX REVENUE
NON TAX REVENUE
TOTAL REVENUE
OPERATING EXPENDITURE
DEVELOPMENT EXPENDITURE
TOTAL EXPENDITURE
DEFICIT
Data Source: MoF
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PUBLIC SECTOR REVENUE & EXPENDITURE
YEAR
1990
2000
2006
2007
2008
2009
2010
2011
2012
2013
TOTAL REVENUE
RM (mil)
38,472
76,002
101,955
110,733
128,350
132,871
127,189
160,657
189,019
195,113
Operating Exp.
RM (mil)
%
29,409
67
64,445
56
117,721
58
135,049
58
165,025
57
170,594
60
167,142
62
196,126
66
226,009
63
234,106
56
EXPENDITURE
Development Exp.
RM (mil)
%
14,587
33
50,439
44
86,534
42
96,310
42
124,369
43
112,200
40
103,029
38
101,256
34
135,224
37
180,244
44
Total
RM (mil)
43,996
114,884
204,255
231,359
289,394
282,794
270,171
297,382
361,233
414,350
DEFICIT
(5,524)
(38,882)
(102,300)
(120,626)
(161,044)
(149,923)
(142,982)
(136,725)
(172,214)
(219,237)
Data Source: MoF
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PUBLIC SECTOR REVENUE & EXPENDITURE
(RM, Million)
500,000
400,000
300,000
200,000
100,000
1990
2000
2006
2007
2008
2009
2010
2011
2012
2013
(100,000)
(200,000)
(300,000)
REVENUE
OPERATING EXPENDITURE
NET DEVELOPMENT EXPENDITURE
TOTAL EXPENDITURE
DEFICIT
Data Source: MoF
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The Role of Tax Policy
•
•
•
•
•
•
•
Moving towards high income economy
Promote holistic and sustainable development
Ensuring wellbeing and enhancing quality of life of the people
Promotion of trade and investment
Supporting human capital development
Environmental concern
Enhancing competition
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Sustainable Tax System
Our tax system must be
economically, humanly, socially
and environmentally friendly.
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1. The Economic Perspective
•
•
•
•
•
Fair transfer of resources from private to public use
Raise enough revenue to sustain public expenditure
Low administrative and revenue collection costs
Horizontal equity across taxpayers
Redistribution of income
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2. The Human and Social Perspectives
•
•
•
•
•
•
•
Aggressive vs regressive tax
Personal Income tax
Simple and easy to understand and comply
Does not over burden the tax payer
Promotes employment
Tax effects on disposable income
Supports social well-being
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3. Sustainable Tax Policy- Environmental Perspective
Environmentally friendly
Does little or no harm to the economy
Promotes innovation
Promotes green technology
Promotes R&D in environmental friendly areas
Attracts investment in eco-friendly related services,
activities and products
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Income Tax vs Corporate Tax
Source: World Bank data
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IRB Annual Report 2011
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Tax Revenue as % of GDP
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Green Incentives
• Some forms of green taxes for environmental preservation to ensure
sustainable economic development are provided.
• Incentives mainly cover:
o
o
o
o
o
o
o
o
Renewable energy and energy conservation
Biotechnology
Research and development and its commercialization
Storage, treatment and disposal of toxic and hazardous wastes
Waste recycling activities
Green Building Index certificate
Accelerated capital allowance for environmental management
Purchase of green technology Equipment
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Goods and Services Tax (GST)
• Tax revenue underpins the government’s ability to operate in
all areas
• To generate sufficient revenue to finance and sustain the
economy through sustainable development projects, the
existing tax base has to be widen with the implementation of
GST in April 2015.
• Indeed, a wider tax base yields greater revenue. HOWEVER,
whether GST will promote economic sustainability or not
depends on how fraud risk is managed and how the proceeds
are used.
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People and Social Tax Incentives
• Incentive for implementation of
• Reduction of income tax rate
minimum wages
• Special tax relief for middle income
• More list of goods or services
earners
categorized under exempt supply or
zero rated
• Incentive on private retirement
scheme
• Tax incentive in line of GST
implementation
• 1Malaysia Pension Scheme
– Tax deduction for secretarial fee &
• Zakat and Waqf
taxation fee
– ICT equipment & software be given
• Subsection 44(6) tax exemption
ACA
• Flexible Works Arrangement
– GST related training in accounting &
ICT be given further deduction
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Tax Attractiveness 2005 to 2009
Tax Attractiveness Index
0.6886
0.6798
0.5913
0.3361
0.2748
0.2432
0.3197
0.2206
0.1505
AUSTRALIA
CHINA
GREAT BRITAIN
JAPAN
KOREA
MALAYSIA
SINGAPORE
INDONESIA
US
Index
Data Source: Keller et al. (2013)
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Challenges/Issues of Tax Compliance
•
•
•
•
•
•
•
•
Tax complexity
Tax evasion
Financial crisis
Poor documentation and record keeping
Creative tax planning
Incentive claims
Ecommerce
Information technology/systems, etc
Seminar Bajet 2012 - MATA
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54
Enhancing Tax Compliance
•
•
•
•
•
•
•
Tax education Programmes
Customer Services
Street surveys
Pre-filling
Tax audit and investigation
Risk management
Information technology- electronic systems
– Mobile devices
Seminar Bajet 2012 - MATA
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55
Conclusion
• The design of tax systems is crucial if sustainable economy is to be
attained in the face of challenges such as globalization, climate
change and ageing populations, while supporting inclusive growth,
high employment and an equitable income distribution.
• Sustainable tax systems should consider economic, social and
environmental perspectives
• Malaysian tax system is generally following the world trend.
However, some initiatives for example green taxes should include
both incentives and penalties.
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SALIHIN
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